OREANDA-NEWS. Japan's Osaka Steel has approved a plan to take steelmaker Tokyo Kohtetsu private and shore up their positions against increasingly "fierce" competition in steel markets.

Tokyo Kohtetsu will become a subsidiary of Osaka Steel under a plan approved today by the latter's board of directors to acquire a controlling stake.

The two electric arc furnace steelmakers recognise that competition in steel markets "will become increasingly fierce in the future" with domestic demand to fall after the 2020 Tokyo Summer Olympics and exports to be curtailed as Chinese exports lead to trade actions.

Domestic demand, which makes up the bulk of the companies' sales, will remain steady until around 2018 based on current forecasts, but Japan's declining birth rate and ageing population will lead to lower construction demand in the medium and long term, Osaka Steel said.

The companies "expect that the stabilisation of scrap steel prices is merely tentative" and volatility in scrap prices and increased competition will reduce the spread between scrap costs and finished steel prices for an extended period.

In export markets, "downward trends in overseas steel prices will continue because of the rapid increase in the export volume from China caused by the decline in domestic demand for steel and the excessive production in China, and as a result of overseas countries controlling import volume, the export volume from Japan will decrease".

Osaka Steel began discussions in April with major shareholders trading house Mitsui and steelmaker Hanwa in June to take the steelmaker private. Hanwa will remain the second largest shareholder with a 26.48pc stake under the plan.

The alliance will combine the strengths of its operations in Osaka and Kumamoto in western Japan with those of Tokyo Kohtetsu based in the east of the country, Osaka Steel said. It will make a share tender offer after regulatory approvals expected in February next year.